PRSI, the health levy and income levies are likely to be rolled into a new increased single 'social contribution' payment.

While all these levies are already in place, the Government is expected to apply them to more taxpayers and at lower income levels.

Controversial items from Colm McCarthy's An Bord Snip report are also expected to be revived, sources revealed last night.

Mr Lenihan dramatically shifted the budgetary target as the EU's economics chief, Olli Rehn, piled pressure on the Government to continue its unpopular policy of cuts. He sent shockwaves through Fianna Fail's pre-Dail gathering in Galway after he said the €3bn agreed with the EU was a "minimum figure".

"The figure indicated in the stability and growth pact is the indicative figure, but clearly there is scope for the Government to increase that figure if they're so minded. But again, no decision has been taken on that," Mr Lenihan said.

Mr Lenihan refused to elaborate on where the axe would fall. "We have to look at what can be saved and what the correct position is," he said.

The Government now has exactly 12 weeks to finalise the December 7 Budget.

Capital spending on infrastructure will be cut by €1bn, meaning a further €2bn still has to be identified in cuts to day-to-day spending and tax hikes.

Up to €750m is expected to be raised on the taxation side, but without an increase in income tax rates.

Ministers have already indicated that pensions won't be cut and water charges and a property tax will not be introduced. The terms of the Croke Park deal mean public-sector pay cannot be reduced for the next three years.

Last year, the Government shied away from means testing child benefit, which costs €2.5bn a year, but this could be looked at afresh this year.

The Taoiseach's top economic adviser, Professor Peter Clinch, yesterday told Fianna Fail TDs and senators that Ireland had faced a major global recession head on.

"Tough and painful decisions have been made. We have emerged from recession. Nonetheless, continued weakness in the domestic economy and turbulence in financial markets is a warning that we cannot be complacent.

Deficit

"We must deliver on the €3bn adjustment of the public finances required in 2011 -- as the next step in bringing the deficit below 3pc by 2014," he said.

Fine Gael said the multi-billion euro black hole created by Anglo Irish Bank was now causing higher taxes and deeper cuts to be imposed on the public.

Finance spokesman Michael Noonan said Mr Lenihan's statement was motivated by a desire to stiffen the resolve of backbenchers for these deeper cuts.

"The ever rising cost and uncertainty surrounding Anglo Irish is beginning to bite," he said.

Mr Rehn, the EU Commissioner for Economic and Monetary Affairs, earlier piled pressure on the Government to keep up momentum on budget cuts in light of the ballooning cost of the Anglo bailout.

"The Irish Government has convincing plans to complete financial repairs in Ireland, which is unfortunately going to be quite costly," he said.

"It is very important that Ireland maintains its rigorous approach with regard to the public finances, which is quite a formidable challenge."

The cost to the State of borrowing also remains high, partly due to the banking bailout. The high interest rates being charged to Ireland have led to predictions that the Government will have to cut deeper to assuage the international markets.